Final answer:
The October 1987 stock market crash and the technology crash of 2000-2001 cast doubt on the notion of a random walk because they deviated from the expected pattern of stock price movements. These extreme events showed that stock prices can experience sharp and unexpected declines, challenging the assumption of a reliable trend.
Step-by-step explanation:
The October 1987 stock market crash and the technology crash of 2000-2001 cast doubt on the notion of a random walk because they were extreme events that deviated from the expected pattern of stock price movements. The random walk theory suggests that stock prices follow a random pattern with a trend, meaning that they are just as likely to rise as to fall on any given day, and over time, tend to have more upward movements than downward movements. However, these crashes showed that stock prices can experience sharp and unexpected declines, challenging the assumption of a reliable trend.
For example, in October 1987, the stock market experienced an abrupt and severe decline, known as Black Monday. This event was unexpected and caused panic selling, leading to a rapid drop in stock prices. Similarly, the technology crash of 2000-2001 was characterized by a significant decline in the stock prices of technology companies that had experienced a period of rapid growth. These crashes demonstrated that stock price movements can deviate from the expected random pattern, challenging the notion of a purely random walk.